Island Crafts Cataloger

The Business A 10-year-old crafts cataloger of hand-knit-sweater kits (60% of sales), how-to books (27%), and more, based in a rustic barn 12 miles off Maine's coast. Patterns are designed by 15 freelancers, and kits (averaging $65) are assembled and shipped by six staffers. A 16-page catalog generates 70% of revenues; the rest comes from 350 wholesale accounts. The seller is headed for a state senatorship.

Outlook The number of U.S. armchair shoppers doubled in the 1980s, hitting 99 million in 1990, but consumer catalog sales slumped 3% in 1991. Fabric-crafts-kit sales in that $30-billion market grew 18% last year, to $33 million. A shakeout in the crafts-kit sector will let high-end suppliers improve response rates with finely tuned lists, quality wares, and superior service -- hallmarks of this house, and possible explanations for the 7% return (three times the industry norm) it gets on its annual 100,000-catalog mailing.

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Price Rationale Price includes $50,000 in inventory (65% yarn; 35% books), a list of 10,000 buyers, 95 design and book copyrights, and office equipment. Unraveling revenues were caused by a shift from servicing wholesale accounts to concentrating on much-higher-margin mail-order accounts. The seller thinks a savvy buyer can generate $100,000 in cash flow. To arrive at her price, she earmarked $50,000 for salary, then used a multiple of two on the remaining $50,000 and added back the inventory. Experts say $90,000 cash flow is more likely, but figure on $25,000 in pay, use a multiple of 1.4, and then add the inventory. Either way, the price is fair.

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Pros Tightly woven alliances with suppliers and a growing catalog niche make this a cinch for a direct-mail maven. Deep-six the wholesale accounts, expand the catalog, tap European and Japanese markets, where consumers are captivated by colonial crafts, and you're golden.

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Cons The use of independent contractors, however legitimate, is always an enticing target for overzealous IRS auditors. Plus, the Postmaster General is generously passing along another rate increase in 1994. -- Karen E. Carney

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Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Anania Strand & Associates, 207-871-1861. n